Abstract: Residential buildings are responsible for approximately 20 percent of U.S. energy consumption, and single-family homes alone account for about 16 percent. Older homes are less energy efficient than newer ones, and although many experts have identified upgrades and improvements that can yield significant energy savings at relatively low, or even negative, cost, it has proved difficult to spur most homeowners to make these investments. In this study, I analyze the energy and carbon dioxide (CO2) impacts from three policies aimed at improving home energy efficiency: a subsidy for the purchase of efficient space heating, cooling, and water heating equipment; a loan for the same purchases; and efficiency standards for such equipment. I use a version of the U.S. Energy Information Administration’s National Energy Modeling System, NEMS-RFF, to compute the energy and CO2 effects and standard formulas in economics to calculate the welfare costs of the policies. I find that the loan is quite cost-effective but provides only a very small reduction in emissions and energy use. The subsidy and the standard are both more costly but generate emissions reductions seven times larger than the loan. The subsidy promotes consumer adoption of very high-efficiency equipment, whereas the standard leads to purchases of equipment that just reach the standard. The discount rate used to discount energy savings from the policies has a large effect on the welfare cost estimates.

Abstract: Transferable development rights (TDRs) are a market-based approach to land conservation. They allow the development rights from one property to be transferred to another, with the first “sending” property placed under a development restriction or conservation easement and the “receiving” property permitted more dense development than would otherwise be allowed by baseline zoning regulations. This paper summarizes the economics literature on TDRs and describes a long-running program in a county in Maryland, one of the few programs with an active TDR market. It updates previously published results from the program and describes some problems that have arisen in recent years as the program has matured. The paper offers some observations as to why these problems have occurred and suggestions for other communities considering TDR programs.

Abstract: This paper develops a model of land use in a growing community on the urban fringe and uses it to explore the spatial patterns and time path of development. The model is an agent-based model (ABM) of housing and land markets that includes as agents farmer/landowners, a developer who buys land and builds houses, and consumers who purchase housing. Housing is characterized by lot size and house size. As in all ABMs, macro-scale patterns emerge from many micro-scale interactions between individual agents, which are modeled computationally. In contrast to many other ABMs, however, the fundamentals of microeconomic decisionmaking are built into the model—consumers choose houses to maximize utility; farmers compare returns from agriculture to the expected value of their land in development; and developers purchase land and build houses so as to maximize profits. Model simulations reveal some aspects of sprawl such as “leapfrog” development, yet also confirm some results from traditional urban economic models, such as declining density and rent (land price) gradients. Sensitivity analyses on the utility function parameters, the distribution of agricultural productivity, and the travel costs highlight the importance of the economic features of the model.

Abstract: This paper uses an economic agent-based model of land use in a hypothetical urban fringe community to examine the effects of large-lot zoning on land conversion, land prices, and the spatial configuration and density of new development. The model incorporates the actions of heterogeneous housing consumers, developers, and farmer/landowners who make economic decisions in land and housing markets. The model allows for population growth and simulates the evolution of land use patterns and prices over a 20-year time period. Zoning regulations in the form of minimum lot size restrictions imposed in an outlying area are shown to have effects that vary with the stringency of the regulations: 2-acre minimum lot sizes have little effect on the spatial patterns of development, but they do increase land and housing prices and result in higher incomes in the region; 5-acre minimum lot sizes push development toward the city center, leaving agricultural land in the zoned region undeveloped until quite late in the simulation period. While house prices are higher with 5-acre zoning, land prices in the zoned region fall, highlighting the countervailing influences of lot size restrictions on land prices. The new modeling approach allows for the tracking of the transitional dynamics of development, both over space and time as the urban area grows.

Abstract: Natural ecosystems provide a variety of benefits to society, known as “ecosystem services.” Fundamental to the provision of ecosystem services in a region is its underlying biodiversity, i.e., the wealth and variety of plants, animals, and microorganisms. Because the benefits from ecosystem services and biodiversity are not valued in market exchanges, private landowners tend to undersupply them. We compare and contrast the different approaches taken to providing ecosystem services on private land in three federal programs—the Endangered Species Act, the Conservation Reserve Program, and Section 404 of the Clean Water Act. The Endangered Species Act (ESA) places restrictions on land uses for private landowners if endangered species, or critical habitats for endangered species, are found on their properties. The Conservation Reserve Program (CRP) compensates farmers for removing valuable property from agricultural production to preserve wildlife habitat, water and soil quality, and other ecosystem values. Section 404 of the Clean Water Act prohibits destruction or damage to wetlands, unless individuals buy credits for equivalent wetlands created by third parties—so-called “wetlands mitigation banks.” These three policies run the gamut from a command-and-control regulatory approach to a “payment for ecosystem services” option. We summarize the economics literature on key findings from these programs.

Abstract: A deposit-refund system combines a tax on product consumption with a rebate when the product or its packaging is returned for recycling. Deposit-refunds are used for beverage containers, lead-acid batteries, motor oil, tires, various hazardous materials, electronics, and more. In addition, researchers have shown that the approach can be used to address many other environmental problems beyond waste disposal. By imposing an up-front fee on consumption and subsidizing "green" inputs and mitigation activities, a deposit-refund may be able to efficiently control pollution in much the same way as a Pigovian tax. Theoretical models have shown that alternative waste disposal policies, such as virgin materials taxes, advance disposal fees, recycled content standards, and recycling subsidies are inferior to a deposit-refund. These results have been corroborated in calibrated models of U.S. waste and recycling. And in theoretical models that consider joint environmental problems and product design considerations, the deposit-refund continues to have much to recommend it as a component of an overall socially optimalset of policies. More empirical research into deposit-refund systems is needed, particularly the upstream systems used for many products. In these systems, the processors or collectors of recyclables—rather than consumers—receive the refund. Upstream systems may have lower transaction costs and better environmental outcomes than traditional downstream systems.

Abstract: Commercial and residential buildings are responsible for 42 percent of all U.S. energy consumption and 41 percent of U.S. CO2 emissions. Engineering studies identify several investments in new enegy-efficiency equipment or building retrofits that would more than pay for themselves in terms of lower future energy costs, but homeowners and businesses generally do not have good information about how to take advantage of these opportunities. Energy auditors make up a growing industry of professionals who evaluate building energy use and provide this information to building owners. This paper reports the results of a survey of nearly 500 home energy auditors and contractors that Resources for the Future conducted in summer 2011. The survey asked about the characteristics of these businesses and the services they provide, the degree to which homeowners follow up on their recommendations, and the respondents’ opinions on barriers to home energy retrofits and the role for government. Findings from the survey suggest that the audit industry only partially is filling the information gap. Not enough homeowners know about or understand audits, and the follow-through on recommendations once they do have audits is incomplete. But the survey findings suggest that low energy prices and the high cost of retrofits may be more responsible for these outcomes than failures of information.

Abstract: This paper explores the near-term effects on household expenditures of legislative cap-and-trade proposals that restrict greenhouse gas emissions. We evaluate optimistic and pessimistic assumptions about the uses of allowance value, compared to relatively predictable results from a cap-and-dividend approach. We find the allocation of emissions allowances is significantly more important to distributional outcomes than the initial costs or regional variation of costs. Older households—age 65 and older—incur relatively less cost than other age groups due to automatic inflation indexing of Social Security. Low income households spend a larger fraction of earnings on energy than wealthier households; however, the distribution of allowance value and indexing of government programs offset this spending. High-income households fare well because of allowance value that ultimately flows to capital owners. The largest burden as a percentage of income falls on middle-income households, which receive neither low-income rebates nor value through ownership of capital stock.

Abstract: Uncertainty is a fundamental characteristic of climate change. This paper focuses on uncertainty that is introduced in the implementation of policy, especially as it affects the level and distribution of theburden on households that results from the allocation of emissions allowances. We examine the Waxman–Markey bill (H.R. 2454), with bookend scenarios labeled optimistic and pessimistic. The scenarios vary outcomes associated with allocations to local distribution companies, investments in electricity energy efficiency and technology development. We introduce a third scenario that allocates asubstantial portion of allowance value directly to households. We find the average consumer surplus loss per household in 2016 in the optimistic scenario to be $136 and the allowance price is as low as $13.20 per ton. In the pessimistic scenario, the consumer surplus loss rises to $413, with an allowance price of $23.43 per ton. Allocation of allowance value directly back to households provides an intermediate, but more certain, result.

Abstract: Federal policies intended to slow global warming would impose potentially significant costs on households, and the costs would vary depending on the policy approach used. This paper evaluates the effects of a carbon dioxide (CO2) cap-and-trade program on households in each of 11 regions of the country and sorted into annual income deciles. We find important variation in the incidence (the distribution of cost) of the policy. The most important feature that affects households is how the policy distributes the value created by placing a price on CO2 emissions. We evaluate five policy alternatives that yield results ranging from moderately progressive (expansion of the Earned Income Tax Credit and cap-and-dividend approaches) to moderately regressive (reduced income taxes and reduction in the payroll tax). To varying degrees, the allocation of the value of emissions allowances amplifies or mitigates the distributional impacts of placing a price on CO2.

Abstract: Federal policies aimed to slow global warming would impose potentially significant costs on households that vary depending on the policy approach that is used. This paper evaluates the effects of a carbon dioxide cap-and-trade program on households in each of 11 regions of the country and sorted into annual income deciles. We find tremendous variation in the incidence (the distribution of cost) of the policy. The most important feature that affects households is how the policy distributes the value created by placing a price on CO2 emissions. We evaluate 10 policy alternatives that yield results that range from moderately progressive (expansion of the Earned Income Tax Credit, investments in efficiency and capand-dividend) to severely regressive (reduce income taxes, free distribution to incumbent emitters and reduction of the payroll tax). To varying degrees the allocation of the value of emissions allowances amplifies or potentially resolves the tradeoff between equity and efficiency.

Abstract: In many communities on the urban–rural fringe, subdivisions are subject to “clustering” rules, in which houses must be located on a portion of the total land area and the remainder of the land is left as open space. This open space may be undisturbed forest or pastureland, or it may include recreation facilities and trails. In some communities, the open space may remain in agricultural use as pasture or cropland. Although the open space may provide benefits to subdivision residents, it means that those residents are living in a higher-density setting than people living in conventional subdivisions. It is unclear whether the benefits offset the loss experienced by smaller lots and higher density. This trade-off is the focus of our study. We use data on subdivision house sales occurring between 1981 and 2001 in a county on the fringe of the Washington, DC, metropolitan area to estimate a hedonic price model. We examine how households value being adjacent to open space and having more open space in the subdivision, and how they may be willing to trade off those amenities with their own private lot space. We find that private acreage matters to households—a 10 percent larger lot leads to about a 0.6 percent higher house price, all else being equal. Subdivision open space is also valuable to households, but the marginal effect is much smaller than the marginal effect of private lot space. We also find that subdivision open space does substitute for private land, but the extent of the trade-off is small. We use the results of the estimated hedonic model to simulate the effects on prices of jointly increasing open space and reducing average lot size, holding the size of the subdivision constant. We find that average house prices are lower with clustering, particularly for interior lots that are not adjacent to open space.

Abstract: We analyze a 2002 survey of Southern California residents to evaluate the relative importance of factors that affect workers’ propensity to telecommute and telecommuting frequency. The survey collected a wealth of individual demographic information as well as job type, industry, and employer characteristics from about 5,000 residents. In agreement with previous studies, we find that the propensity to telecommute is increasing with worker age and educational attainment. At the same time, we conclude that the propensity to telecommute depends to a large extent on a worker’s job characteristics and that the quantitative effects of job characteristics are at least as important as demographic factors. We also study what factors affect telecommuting frequency based on a one-week commuting diary of the telecommuters in the survey. The industry and occupation categories that play a significant role in affecting propensity to telecommute do not have similar effects on telecommuting frequency. On the contrary, some other job-related factors show substantial influences.

Abstract: This paper reviews theoretical and empirical literature on the measurement of the major automobile externalities, namely local pollution, global pollution, oil dependence, traffic congestion and traffic accidents. It then dicusses the rationale for traditional policies to address these externalities, including fuel taxes, fuel economy standards, emissions standards and related policies. Finally, it discusses emerging, more finely-tuned policies, such as congestion pricing and pay-as-you-drive insurance, that have become feasible with advances in electronic metering technology.

Abstract: A core characteristic of extended producer responsibility (EPR) policies is that they place some responsibility for a product’s end-of-life environmental impacts on the original producer and seller of that product. The intent is to provide incentives for producers to make design changes that reduce waste, such as improving product recyclability and reusability, reducing material usage, and downsizing products. This paper assesses whether the range of policies that fall under the EPR umbrella can spur this “design for environment” (DfE). It summarizes the economics literature on the issue and describes conceptually how policies should affect design. It then analyzes three case studies in detail and two more case studies more briefly. The conclusion reached is that some DfE—especially reductions in material use and product downsizing—can be achieved with most EPR policies, including producer take-back mandates and combined fee/subsidy approaches. However, none of these alternative policies as they are currently implemented are likely to have a large impact on other aspects of DfE.

Abstract: Many economists see current land use patterns as inefficient due to various market failures, and planners argue that current patterns do not follow sound planning practice. One policy of interest to both groups is transferable development rights (TDR). TDRs allow the development rights from land that is preserved in an undeveloped state to be transferred to other areas where development can be made denser. This paper addresses one of the greatest difficulties TDR programs face—insufficient demand. We develop a simple theoretical model and estimate a TDR demand function using data from Calvert County, Maryland, one of the only regions where data on individual sales are available. We find that baseline zoning is a critical determinant of TDR demand—demand is high in low-density rural areas but not in the relatively high-density residential areas. We also identify many subdivision characteristics that are significant in explaining TDR use.

Abstract: Many communities on the urban fringe are implementing a range of policies to preserve farmlandand open space, cluster residential development, and guide development to areas with existinginfrastructure. These efforts are an attempt to control overall growth and the concomitant loss in openspace and also to counter a trend toward the so-called large lot development that often takes place in theseareas. Planners have argued that policies to manage density are the most important local policy focus forurban areas in the coming years.It is possible that large lot development and sprawl are themselves the result of governmentpolicy. Most local governments use zoning to establish minimum acreage requirements for eachresidential dwelling unit; in ex-urban localities, these limits are often quite high. Developers might build asubdivision with average lot sizes greater than the minimum but they cannot by law go below it. Someresearchers have argued, however, that the spatial patterns of development are simply the natural result ofhousehold preferences and market forces.In this paper, we address the question of whether zoning limits are the primary cause of lowdensity,sprawling development or whether market forces tend to dictate this outcome. If zoning limitsaccount for low-density development in at least some cases, how would development patterns be differentif there had been no such rules? We begin by constructing a simple model of the developer decision aboutthe density of new development. The subdivision is the unit of observation, and developers must weighboth demand and cost considerations in choosing density, in addition to complying with zoningrestrictions that vary across parcels. We apply the model using parcel-level data from a region wherezoning rules vary but are exogenous to the period under study. Calvert County, Maryland, nearWashington, DC, is an historically rural county that has experienced rapid growth in recent years. Thecounty has a transferable development rights (TDRs) program that has led to a great deal of variability inthe intensity of development across properties. We are able to not only examine the extent to whichzoning has contributed to large lot development but also to determine the economic forces that underliedensity decisions. Finally, we are able to forecast how density would have been different in the absence ofzoning rules by estimating a Tobit equation that is censored for the observations constrained by zoning.

Abstract: This paper reviews theoretical and empirical literature on the household distribution of the costs and benefits of pollution control policies, and ways of integrating distributional issues into environmental cost–benefit analysis. Most studies find that policy costs fall disproportionately on poorer groups, though this is less pronounced when lifetime income is used, and policies affect prices of inputs used pervasively across the economy. The policy instrument itself is also critical; freely allocated emission permits may hurt the poor the most, as they transfer income to shareholders via scarcity rents created by higher prices, while emissions taxes offer opportunities for progressive revenue recycling. And although low-income households appear to bear a disproportionate share of environmental risks, policies that reduce risks are not always progressive, for example, they may alter property values in ways that benefit the wealthy. The review concludes by noting a number of areas where future research is badly needed.

Abstract: In 1999 Congress passed the National Air Quality and Telecommuting Act. This Act established pilot telecommuting programs in five major U.S. metropolitan areas with the express purpose of studying the feasibility of addressing air quality concerns through telecommuting. This study provides the first analysis of data from the “ecommute” program. Using two-and-one-half years of data, we look at telecommuting frequency, mode choice, and emissions reductions. We also look at reporting behavior, dropout rates, and other information to assess the program’s performance. We analyze results by city -Denver, Washington, D.C., Houston, Los Angeles, and Philadelphia are the five pilot cities. And finally, we use the program’s emissions reduction findings to calculate how much telecommuting would beneeded to reach an annual volatile organic compounds emission reduction target in each city. This discussion paper is one in a series of four RFF papers on telecommuting published in December 2004. In addition to analysis of the ecommute data described in this paper, Safirova and Walls(discussion paper 04-43) similarly analyze data from a 2002 survey conducted by the Southern California Association of Governments (SCAG) of telecommuters and nontelecommuters. These same authors putthese findings into context by providing a review of the empirical literature on telecommuting (discussion paper 04-44). Finally, Nelson presents an assessment of institutional and regulatory barriers to using telecommuting in a mobile source emissions trading program (04-45). The studies by RFF are part of a larger report on the ecommute program completed by the Global Environment and TechnologyFoundation (GETF) for the U.S. Environmental Protection Agency. More information about the overall project can be found on the ecommute/GETF website: http://www.ecommute.net/program/.

Abstract: In this paper, we analyze the 2002 Telework Survey conducted by the Southern California Association of Governments (SCAG). Being a relatively recent and large dataset, the survey captures thecurrent state of telecommuting, covering the entire region with a population of 17 million residents, and is not biased by telecommuting policies of particular employees. The survey also distinguishes telecommuters from home-based business owners and therefore provides a more accurate account of the number of telecommuters.Our analysis focuses on the role of demographic characteristics, such as age, gender, ethnicity, household income, presence of children in the household and household size affect the workers’propensity to telecommute. We also look into the distribution of telecommuters across industries, occupations, and firms of various sizes and observe how professional experience and job tenure impacttelecommuting probability. Finally, we analyze telecommuting frequency and how it effects the reduction of vehicle miles traveled (VMT) and gather perceptions of employees who currently don’t work at home.In general, the survey confirms the major factors contributing to telecommuting, such as higher educational level and more professional experience, as well as a longer tenure with the company andone’s supervisor. At the same time, the analysis shows that telecommuters are more likely to be male and have smaller households than nontelecommuters. This is surprising given the findings from previous studies. The survey also shows that as many as one-third of telecommuters are working on-site and telecommuting on the same day and therefore eroding VMT reduction from telecommuting. Finally, thedata on workers who currently don’t telecommute reveal a disconnect between workers desire and ability to telecommute, since less-educated workers are more enthusiastic about working at home than moreeducated ones while the latter are more likely to be able to elecommute.This discussion paper is one in a series of four RFF papers on telecommuting published in December 2004. In discussion paper 04-42, Walls and Nelson analyze data from five pilot cities enrolledin the “ecommute” program. In 04-44, Walls and Safirova review the empirical literature on telecommuting with a focus on trip reduction impacts. Finally, in 04-45, Nelson presents an assessment ofinstitutional and regulatory barriers to using telecommuting in a mobile source emissions trading program. The studies by RFF are part of a larger report on the ecommute program completed by theGlobal Environment and Technology Foundation (GETF) for the U.S. Environmental Protection Agency. More information about the overall project can be found on the ecommute/GETF website:http://www.ecommute.net/program/.

Abstract: In this paper, we review 20 relatively recent empirical studies of telecommuting, all of which focus on the trip reduction perspective. The studies include earlier ones with smaller datasets, such assome pilot studies of individual employers, and more recent studies based on broader surveys of both telecommuters and nontelecommuters. We focus on the results of the studies with respect to participationand frequency of telecommuting, the effects on vehicle-miles-traveled (VMT) and trips, and in some cases, the impacts on emissions and air quality. Although there does not seem to be a consensus, there is apredominant view that certain factors increase both the likelihood of telecommuting and the frequency of telecommuting. These factors are having children in the household, being female, having more education,having a longer commute trip, having worked longer for one’s current employer and/or in one’s current position, and having a job that does not require face-to-face contact with coworkers or clients. Moststudies of VMT and trip reductions from telecommuting show that telecommuters significantly reduce both daily trips and VMT. Not only does commute VMT fall, but noncommute VMT appears to fall insome cases as well. The studies of VMT, however, tend to focus on the reductions for individual employees who choose to telecommute. Although an individual telecommuter may experience a sharpreduction in VMT, total benefits depend on how many people are telecommuting, how often they are doing so, and the duration of telecommuting. More research is needed with larger and more broadly based datasets across employers that include both individual employee characteristics and employer and job characteristics. This would allow a better analysis of telecommuting choice and frequency as well as more reliable estimates of VMT and emissions impacts.This discussion paper is one in a series of four RFF papers on telecommuting published in December 2004. Discussion papers 04-42 and 04-43 present analyses of two recent datasets on telecommuters. In 04-42, Nelson and Walls analyze data from five pilot cities enrolled in the "ecommute" program. In 04-43, Safirova and Walls analyze data from a broad survey conducted by the Southern California Association of Governments (SCAG) of telecommuters and nontelecommuters. Finally, in 04-45 Nelson presents an assessment of institutional and regulatory barriers to using telecommuting in a mobile source emissions trading program. The studies by RFF are part of a larger report on the ecommute program completed by the Global Environment and Technology Foundation (GETF) for the U.S. Environmental Protection Agency. More information about the overall project can be found on the ecommute/GETF website: http://www.ecommute.net/program/.

Abstract: AbstractThe activities conducted on land surrounding the Chesapeake Bay directly affect pollution levels in the Bay, and they do so in complex and varied ways. Policy attention has been focused, for the most part, on modifying these activities within a particular land use category but not on wholesale changes in land use. For example, farmers are encouraged to use “best management practices” (BMPs) that focus on fertilizer use, crop covers, and the like; residential and commercial developers are encouraged to manage stormwater runoff; and wastewater treatment plants are required to meet technology-based standards. But the amount of land in urbanized uses relative to the amount in farming, forestry, and open space has not been given the attention it deserves. In this paper, we discuss the ways that land use affects pollution in the Bay. We then analyze three economic incentive-based policies that could be used to alter land use patterns—purchase of development rights (PDRs), transferable development rights (TDRs), and development impact fees. The strengths and weaknesses of each policy are discussed. Finally, we discuss the issue of policy coordination, i.e., synchronizing policies focused directly on land use, such as TDRs, with input-based taxes. More research on this important policy issue is needed.

Abstract: Solid waste management services are contracted out to private firms in many U.S. communities. Household waste collection, transport, and disposal are relatively straightforward services to define within the terms of a contract. The addition of recycling, however, significantly complicates matters. How should contracts be structured to provide incentives for recycling? Who should own key facilities, such as recyclable materials processing facilities? Should a separate contract for processing and sale of materials be used, or should these services be provided by government employees or purely private markets? These questions are addressed in this study using the principal-agent framework and the theory of incomplete contracts in economics. I explain stylized facts in the industry, including facts about asset ownership, and look in detail at contracts used in seven communities that have achieved high rates of waste diversion and recycling.

Abstract: Transferable development rights (TDRs) can be used as a local planning tool to preserve land for particular uses. TDRs separate ownership of the right to develop land from ownership of the land itself, creating a market in which the development rights can be bought and sold. Landowners who sell TDRs permanently preserve their land in an undeveloped state; those TDRs are then used to increase the density of development elsewhere. In this paper, we evaluate a TDR program for preserving farmland in Calvert County, Maryland. We evaluate the performance of the TDR market over the 23-year life of the program by looking at the number of transactions and TDRs sold and the level and dispersion of prices over time. We also look closely at the influence of the county government as a participant in the market. We locate the properties that have been preserved in the county as well as the subdivisions that have used TDRs to increase the density of development. We find that the program is achieving Calvert’s farmland preservation goals and the TDR market appears to have operated efficiently, at least since 1993 when the county increased its role in the TDR market. At that time, the county began purchasing a small number of development rights each year at a fixed and known price and also began publishing a newsletter providing information about the program. These actions stabilized prices and appear to have bolstered participants’ faith in the longevity of the program. Most of the agricultural properties preserved in the program are in areas less profitable for development. The demand for TDRs to increase density is greatest in subdivisions in the northern part of the county, closer to the major urban cities, and interestingly, in relatively rural areas with lowdensity zoning. There appears to be little demand for TDRs and the associated higher density in town centers or areas zoned with residential zoning.

Abstract: Extended producer responsibility (EPR) embodies the notion that producers should be made physically or financially responsible for the environmental impacts their products have at the end of product life. The EPR concept has taken hold in Europe and is garnering wide interest in the United States, where a variant known as “shared product responsibility” or “product stewardship” is usually the preferred approach. There are several policy instruments that are consistent with EPR—product take-back mandates, advance disposal fees, deposit-refunds, recycled content standards, and more. The EPR concept itself, however, provides little guidance about which of these instruments might be appropriate under particular conditions and for particular products. Moreover, while the EPR goal is usually focused on end-of-life environmental impacts, in the United States, at least, the goal seems to have widened to include environmental impacts throughout the product life-cycle. And even a focus on end-of-life impacts leaves the question of whether EPR is intended to deal with waste volumes, the toxic constituents of waste, the method of waste disposal, or a combination of these things. In this paper, I address three main topics: appropriate goals for EPR; conditions under which EPR should be preferred over alternative non-EPR policy instruments; and specific policy instruments that are both cost-effective and consistent with EPR principles. In the discussion of the second and third topics, I focus on the issue of “design for environment.” I develop four policy “maxims” that should guide EPR policymaking. I then apply those maxims to a brief case study of electronic and electrical equipment waste.

Abstract: Several studies that have solved for optimal solid waste policy instruments have suggested that transaction costs may often prevent the working of recycling markets. In this paper, we explicitly incorporate such costs into a general equilibrium model of production, consumption, recycling, and disposal. Specifically, we assume that consumers have access to both recycling without payment and recycling with payment but that the latter option comes with transaction costs. Producers choose material and nonmaterial inputs to produce a consumer product, and they also choose design attributes of that product—its weight and degree of recyclability. We find that the policy instruments that yield a social optimum in this setting need to vary with the degree of recyclability of products. Moreover, they need to be set to ensure that recycling markets do not operate—that is, that all recycling takes place without an exchange of money between recyclers and consumers. We argue that implementing such a policy would be difficult in practice. We then solve for a simpler set of instruments that implement a constrained (second-best) optimum. We find the results in this setting more encouraging: a modest disposal fee—less than the Pigouvian fee—combined with a common deposit-refund applied to all products will yield the constrained optimum. Moreover, this set of constrained optimal instruments is robust to the possibility that consumers imperfectly sort used products into trash and recyclables.

Abstract: We study determinants of market organization of local public services by an empiricalexamination of one of the most visible municipal services, residential waste management. Usinga multinomial logit model and data for 1,000 U.S. communities, we explore the effect of politicalinfluence, voter ideology, environmental constraints, production costs (i.e., “economies ofdensity”), and contracting transaction costs on a community’s choice of market arrangement forwaste collection and recycling. We find that cost factors are a significant determinant of servicedelivery method. In contrast, few of the political variables are statistically significant. Theseresults hold for our models of both waste and recycling, lending further evidence to theconclusion that local governments emphasize costs when choosing between private and publicprovision.

Abstract: Several studies have shown the efficiency of both a Pigovian tax on waste disposal and a deposit-refund instrument, that is a combined output tax and recycling subsidy. The efficiency of these instruments, however, critically depends on households being paid for recycling. In reality, although most households have access to curbside recycling services, they are not paid for the items they set out at the curb. All items placed in a recycling bin are thus of equal value to a household, and there is no incentive for producers to make their products any more recyclable than what is necessary to be eligible for the bin. This paper characterizes the constrained (second-best) optimum that exists with the missing recycling market and solves for a modified deposit-refund instrument that will achieve the constrained optimum.

Abstract: Many environmentalists and policymakers are shifting their focus from media-specific pollution problems to product-specific, life-cycle environmental problems. In this paper, we develop a model of production and consumption that incorporates life-cycle environmental externalities—specifically, an upstream manufacturing byproduct, air or water pollution from manufacturing, and downstream solid waste disposal. We then use the model to derive optimal government policies to address all three externalities. We assume throughout that a Pigovian tax on waste disposal is precluded because of the potential for illegal dumping. We then examine four cases: one in which Pigovian taxes on the upstream externalities are feasible, one in which such taxes are infeasible, and two final cases in which the upstream pollutant is subject to one of two different types of regulatory standards. In general, we find that no single instrument can solve multiple problems, contrary to what some observers have suggested. However, we find that there are alternative ways of reaching the social optimum. We also discover that a so-called "integrated" approach to policy appears to be important, no matter what policy options are adopted. And finally, we find that there is only a limited role for product "life-cycle assessments"—enumerations of all of the resources used and pollutants emitted throughout an entire product life-cycle.

Abstract: Extended Product Responsibility embodies the notion that agents along a product chain should share responsibility for the life-cycle environmental impacts of the product, including those associated with ultimate disposal. Extended Producer Responsibility is a narrower concept which places responsibility on producers and focuses primarily on post-consumer waste disposal. Manufacturer "take-back" requirements are the policy lever most often associated with Extended Producer Responsibility. In this paper, the authors discuss alternative incentive-based policies that are consistent with the objectives of Extended Product and Producer Responsibility. They argue that an upstream combined product tax and recycling subsidy (UCTS) is generally more cost-effective and imposes fewer transactions costs than the take-back approach. They also consider the strengths and weaknesses of a policy not targeted at producers: unit-based pricing of residential waste collection and disposal. The authors find that this option shows potential for achieving non-trivial reductions in solid waste. Widespread application in the U.S. of a $1.00 charge per 32-gallon bag could reduce total municipal solid waste disposed by approximately 13 percent per year.

Abstract:

Regulation of mobile source emissions in the US has evolved as a complex combination of central government and decentralized authority. The central government required uniform new car emissions standards in the 1970 Clean Air Act, but gave states the power to meet ambient air quality standards however they saw fit, including various regulations on mobile sources. The 1990 Amendments to the Act strengthened the Federal role in some ways, by requiring tighter new car standards and more specific requirements for fuels and for vehicle emissions inspection and maintenance, but at the same time left states with a great deal of latitude to meet ambient standards and took greater recognition of regional variation in environmental problems. We examine the role of various levels of government in attempts to control vehicle emissions in the US, focusing primarily on regulations affecting ambient ozone pollution.

Current regulations coming out of the 1990 Amendments are still the subject of much controversy. Several regulations are examined here from the federalist perspective, including the California new car standards and the current debate over "enhanced" inspection and maintenance. We discuss the theoretical basis for national uniform regulations, including production scale economies for new cars, pollution spillovers from one jurisdiction to another, and prevention of state non-compliance with ambient air quality goals. For the analysis of economies of scale in production, we model the trade-offs between gains from scale economies in polluted regions and losses from excess controls in cleaner regions, and illustrate the role of interregional transfers or side-payments. These trade-offs and transfers are particularly important as decisions are being made about whether the "California cars" will be sold only in California or whether they will be sold in the Northeast states and elsewhere. We then look at the debate over enhanced I&M. Finally, we draw some tentative conclusions about the future role of the states versus the central government in US ozone policy.

Abstract: This paper explores public policies for reduction of municipal solid waste. We parameterize a simple model of waste disposal using supply and demand elasticities from the economics literature and 1990 prices and quantities of recyclable and recycled materials. Using this model, we calculate the waste reduction in response to three public policies: (i) deposit/ refunds, (ii) advance disposal fees, and (iii) recycling subsidies. The results illustrate the effects of the three policies on source reduction and recycling of five recyclable materials that comprise 56 percent of municipal solid waste: aluminum, glass, paper, plastic, and steel. The calculated responses provide information about the cost of reducing municipal solid waste through various policies. This analysis suggests that a 7.5 percent reduction in disposal of the solid wastes in the model might have been optimal in 1990 from a benefit-cost perspective.

Abstract: One of the most common criticisms of pollution taxes is that they are often believed to be inequitable — i.e., low income households are thought to be disproportionately harmed. In this paper, we assess the distributional impacts of three taxes aimed at reducing emissions from motor vehicles: (i) a tax on total annual emissions, (ii) a tax on emissions rates (in grams per mile), and (iii) a tax on annual miles traveled. We use two alternative measures of economic well-being, annual household income and a constructed measure of lifetime income. We find that all three fees look regressive, both on the basis of annual and lifetime income — though much less so on a lifetime income basis. However, if one of these fees is used to substitute for existing vehicle registration fees, the differential impacts over existing fees are quite small: on a lifetime income basis, the mileage-based fee looks almost identical to the current system, while the total emissions fee is a little more regressive and the emissions rate-based fee slightly more regressive still than the current system. These results highlight the importance of tax shifting to help the environment.

Abstract: In this paper we review and analyze the existing estimates of the costs of compliance with environmental regulation of light duty vehicles over the two decades, 1970 to 1990. The cost estimates reviewed include several on-going compliance costs estimates by government agencies: (i) EPA's periodic estimates which can be found in the Cost of Clean Air and Water Reports of 1984, 1990 and in unpublished 1993 revisions, and (ii) estimates by the Bureau of Economic Analysis (BEA) which are published in the Survey of Current Business. We also look at several independent research studies, one by Lawrence White (1982) The Regulation of Air Pollutant Emissions from Motor Vehicles, another by Robert Crandall et al. (1986) Regulating the Automobile, and one study of capital costs for 1990 model year vehicles in California by Wang, Kling and Sperling (1993) "Emission Control Costs for Light-Duty Vehicles." We compare the methods and assumptions used by these studies for estimating the costs of complying with environmental regulations, focusing on the three major components of cost: capital, operating, and maintenance costs. We then explore some of the difficult conceptual issues that arise when trying to define and estimate these costs, such as defining the baseline or "no regulation" world, determining which costs should be included when there is more than one regulatory change, and how to define costs to include the full social costs of the regulations. Where possible, we suggest some ways that the cost estimates might be improved or made more consistent.

Abstract:

Environmentalists, the Congress and other decisionmakers, waste managers, and the public articulate a host of objectives in managing solid waste. These objectives include: decreasing undesirable environmental and health effects associated with solid waste landfills and incinerators; conserving energy and virgin material resources; offsetting existing government policies that promote virgin material use; reducing greenhouse gas emissions; increasing the demand for secondary materials to help local communities sell the recyclables they collect; meeting state and local recycling goals; and decreasing undesirable environmental and health effects associated not only with waste disposal but with the entire "life-cycle" of all products.

This list represents an amalgam of underlying concerns about safeguarding the environment, natural resources, and human health; it also includes some objectives which are not necessarily ends in themselves (such as offsetting virgin materials use or meeting recycling goals—presumably, these goals are means by which to protect the environment and health). In this paper, we evaluate these various goals from an economic efficiency standpoint and assess the ability of different solid waste and recycling policies to achieve these goals.

We conclude that the most important problem that solid waste and recycling policies can address is the problem of zero pricing for residential solid waste collection and disposal that exists in most communities in the United States. Zero prices lead to more disposal than is socially optimal. The most efficient policy for addressing the problem, absent illegal disposal opportunities, is pricing trash disposal at, or close to, its marginal social cost. A policy that achieves the same outcome but without the potential for increasing illegal disposal is a deposit/refund approach. These policies will be incapable of correcting this market failure and at the same time addressing all of the other concerns above. Moreover, "first-best" solutions will address these problems directly—for example, greenhouse gas emissions are reduced most cost-effectively with a carbon tax; and any distorting government policies in virgin material markets are best addressed by eliminating those policies.

Abstract:

A number of recent theoretical studies have shown that, in the presence of illegal disposal opportunities, an optimal policy for reducing solid waste is a combination of a final product tax and a recycling subsidy—i.e., a deposit/refund system. A deposit/refund is equivalent to a charge on disposal: the deposit is refunded if the product is recycled, so the consumer only bears a cost if the product is discarded. As a result, the deposit/refund ensures that the least-cost method of reducing disposal is used, whether it be through source reduction or recycling. By contrast, other policies take advantage of only source reduction or only recycling as opportunities for waste reduction.

This study provides empirical estimates of the costs of deposit/refunds, along with advance disposal fees (ADFs), recycling subsidies, and recycling rate standards. The estimates are generated through calibration of a simple two-equation model of the supply and demand for secondary materials and a mass balance condition describing waste disposal. The calibration is performed using supply and demand elasticity estimates from the extant economics literature and 1990 baseline prices and quantities of materials in the municipal solid waste stream. These empirical estimates have two kinds of policy implications. First, they allow a comparison of the relative costs of the different approaches. Although previous research has shown that the deposit/refund provides the best incentives, other policies may be more politically or administratively feasible. Our comparison of the relative costs of the policies will allow policy- makers to assess the trade-off between political and administrative considerations and the incentives the policies create. Second, the paper evaluates the absolute magnitude of the costs of waste reductions. Thus, these costs may be compared with the benefits of waste reduction to decide if any policy intervention is desirable, and if so, how much waste should be reduced.

We find that, indeed, the deposit/refund is the least-cost approach. For a 10 percent reduction in waste disposal, the deposit/refund has a marginal cost of only $45 per ton of waste reduced. By comparison, the ADF at $85 per ton and the recycling subsidy at $98 per ton are almost twice as costly as the deposit/refund. Setting recycling rate standards to achieve a 10 percent reduction has a marginal cost of $61 per ton of waste reduced. The larger the desired percentage reduction in disposal, the greater the absolute divergence in costs between the deposit/refund and the other approaches. Even allowing for uncertainty in the elasticity estimates, through a Monte Carlo simulation approach, the deposit/refund is still found to be cheaper than the other three alternatives. A remaining concern, however, is the administrative costs of the deposit/refund. Existing estimates suggest that traditional "bottle-bill" states have high administrative costs--so high that the ADF, which is essentially a deposit without the refund, would appear to be cheaper. Estimates of the administrative costs of the more centralized California system, on the other hand, are low enough to make the deposit/refund still the preferred approach. Nonetheless, we feel that more research into administrative costs by material is needed.

We find that a policy that requires a uniform percentage reduction in each material in the solid waste stream is substantially more costly than an approach where materials are allowed to be reduced in the least-cost fashion. A 10 percent reduction in each material in the solid waste stream, for example, would be achieved with a set of deposit/refunds that cost $70 per ton of waste reduced.

We argue that the principal benefits of waste reduction are the avoided landfill disposal costs. In this case, we find that a deposit/refund of approximately $33 per ton would be optimal—i.e., would provide a reduction in waste disposal to the point where the marginal benefits of that reduction just equals the marginal costs. A $33 per ton deposit/refund yields about a 7.5 percent reduction in waste disposal for the wastes that we address in our model. We qualify this finding, however, by noting that our model is calibrated on 1990 data. There have been significant changes in recycling markets in the mid-1990s—prices for many secondary materials have risen as demand for those materials has increased. As a result, further increases in demand (and reductions in waste disposal) could be more costly than predicted by our model. This would imply a smaller optimal reduction in disposal. Updating the data is a topic for future research.